Question 1

Rule of 72 Approximately what interest rate is needed to double an investment over six years?

Accepted Answer

A) 6 percent 
B) 12 percent 
C) 17 percent 
D) 100 percent 
A) 6 percent 
B) 12 percent 
C) 17 percent 
D) 100 percent B

Question 2

Compounding with Different Interest Rates A deposit of $700 earns interest rates of 10 percent in the first year and 7 percent in the second year.What would be the second year future value?

Accepted Answer

A) $771.07 
B) $819.00 
C) $823.90 
D) $1519.00 
A) $771.07 
B) $819.00 
C) $823.90 
D) $1519.00 C

Question 3

Which is more valuable,receiving $775 today or receiving $885 in 2.5 years if interest rates are 7.25 percent?

Accepted Answer

A) Receiving $775 today 
B) Receiving $885 in 2.5 years 
C) They are worth the same amount 
D) Need more information to make a determination 
A) Receiving $775 today 
B) Receiving $885 in 2.5 years 
C) They are worth the same amount 
D) Need more information to make a determination A

Question 4

The interest rate,i,which we use to calculate present value,is often referred to as the:

Accepted Answer

A) discount rate. 
B) multiplier. 
C) compound rate. 
D) dividend. 
A) discount rate. 
B) multiplier. 
C) compound rate. 
D) dividend.

Question 5

You are offered a choice between $770 today and $815 one year from today.Assume that interest rates are 4 percent.Which do you prefer?

Accepted Answer

A) $770 today 
B) $815 one year from today 
C) They are equivalent to each other 
D) $770 today at 3 percent interest rates 
A) $770 today 
B) $815 one year from today 
C) They are equivalent to each other 
D) $770 today at 3 percent interest rates

Question 6

Moving Cash Flows What is the value in year 3 of a $250 cash flow made in year 15 when interest rates are 12 percent?

Accepted Answer

A) $45.67 
B) $64.17 
C) $177.95 
D) $220.00 
A) $45.67 
B) $64.17 
C) $177.95 
D) $220.00

Question 7

You are considering an investment that is expected to pay 3 percent in year 1,5 percent in years 2 and 3 and 7 percent in year 4.If you invest $1,000 today,what will this investment be worth at the end of the fourth year?

Accepted Answer

A) $1215.07 
B) $1215.51 
C) $1275.81 
D) $1285.75 
A) $1215.07 
B) $1215.51 
C) $1275.81 
D) $1285.75

Question 8

A $2 million deposit earns 7 percent for 13 years.If the account earns 9 percent per year forever after that,how long will it take to grow to $5 million?

Accepted Answer

A) Zero; the account exceeds $5 million after 13 years 
B) 0.26 years 
C) 0.43 years 
D) 1.18 years 
A) Zero; the account exceeds $5 million after 13 years 
B) 0.26 years 
C) 0.43 years 
D) 1.18 years

Question 9

You deposit $20,000 in an account that doubles in 7 years.How many years will it take the account to be reduced to its original value if it loses 12 percent per year?

Accepted Answer

A) 4.92 years 
B) 5.42 years 
C) 6.62 years 
D) 8.22 years 
A) 4.92 years 
B) 5.42 years 
C) 6.62 years 
D) 8.22 years

Question 10

Solving for Rates What annual rate of return is implied on a $1,000 loan taken next year when $1,500 must be repaid in year 5?

Accepted Answer

A) 8.45 percent 
B) 10.00 percent 
C) 10.67 percent 
D) 12.50 percent 
A) 8.45 percent 
B) 10.00 percent 
C) 10.67 percent 
D) 12.50 percent

Question 11

Which of the following would you prefer?

Accepted Answer

A) $500 to be received in 10 years when rates are 8 percent 
B) $300 today 
C) $600 to be received in 12 years when rates are 8 percent 
D) $700 to be received in 12 years when rates are 7 percent 
A) $500 to be received in 10 years when rates are 8 percent 
B) $300 today 
C) $600 to be received in 12 years when rates are 8 percent 
D) $700 to be received in 12 years when rates are 7 percent

Question 12

If an average home in your town currently costs $250,000,and house prices are expected to grow at an average rate of 3 percent per year,what will a house cost in 8 years?

Accepted Answer

A) $255,033.41 
B) $255,043.97 
C) $314,928.01 
D) $316,692.52 
A) $255,033.41 
B) $255,043.97 
C) $314,928.01 
D) $316,692.52

Question 13

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9 percent in years 6 and 7 and increase to 13 percent in the remaining years?

Accepted Answer

A) $1,538.62 
B) $1,691.47 
C) $1,714.31 
D) $1,799.42 
A) $1,538.62 
B) $1,691.47 
C) $1,714.31 
D) $1,799.42

Question 14

A firm's net income last year was $1.5 million.Its net income grew 5 percent during the last 5 years.If that growth rate continues,how long will it take for the firm's net income to double?

Accepted Answer

A) 7.6 years 
B) 10.47 years 
C) 14.21 years 
D) 14.55 years 
A) 7.6 years 
B) 10.47 years 
C) 14.21 years 
D) 14.55 years

Question 15

Solving for Time How long will it take $3,000 to reach $5,000 when it grows at 7 percent per year?

Accepted Answer

A) 7.00 years 
B) 7.55 years 
C) 9.52 years 
D) 10.29 years 
A) 7.00 years 
B) 7.55 years 
C) 9.52 years 
D) 10.29 years

Question 16

Explain how "interest rate" and "rate of return" are similar,yet different.

Accepted Answer

Both the interest rate and rate of retur

Question 17

Solving for Rates What annual rate of return is earned on a $10,000 investment when it grows to $15,000 in 10 years?

Accepted Answer

A) 1.50 percent 
B) 3.97 percent 
C) 4.14 percent 
D) 5.00 percent 
A) 1.50 percent 
B) 3.97 percent 
C) 4.14 percent 
D) 5.00 percent

Question 18

Scenario A: At age 27,you invest $1,500 that earns 9 percent each year.Scenario B: At age 40,you invest $2,500 that earns 11 percent per year.Under which scenario do you accumulate more money by age 60?

Accepted Answer

A) Scenario A 
B) Scenario B 
C) Both scenarios have the same value by age 60 
D) Need more data to answer 
A) Scenario A 
B) Scenario B 
C) Both scenarios have the same value by age 60 
D) Need more data to answer

Question 19

Interest-on-Interest Consider a $2,000 deposit earning 6 percent interest per year for five years.How much total interest is earned on the original deposit (excluding interest earned on interest)?

Accepted Answer

A) $60.00 
B) $76.45 
C) $600.00 
D) $676.45 
A) $60.00 
B) $76.45 
C) $600.00 
D) $676.45

Question 20

Moving Cash Flows What is the value in year 7 of a $700 cash flow made in year 3 when the interest rates are 10 percent?

Accepted Answer

A) $478.11 
B) $980.00 
C) $1,024.87 
D) $1,364.10 
A) $478.11 
B) $980.00 
C) $1,024.87 
D) $1,364.10

Rule of 72 Approximately what interest rate is needed to double an investment over six years?

Compounding with Different Interest Rates A deposit of $700 earns interest rates of 10 percent in the first year and 7 percent in the second year.What would be the second year future value?

Which is more valuable,receiving $775 today or receiving $885 in 2.5 years if interest rates are 7.25 percent?

The interest rate,i,which we use to calculate present value,is often referred to as the:

You are offered a choice between $770 today and $815 one year from today.Assume that interest rates are 4 percent.Which do you prefer?

Moving Cash Flows What is the value in year 3 of a $250 cash flow made in year 15 when interest rates are 12 percent?

You are considering an investment that is expected to pay 3 percent in year 1,5 percent in years 2 and 3 and 7 percent in year 4.If you invest $1,000 today,what will this investment be worth at the end of the fourth year?

A $2 million deposit earns 7 percent for 13 years.If the account earns 9 percent per year forever after that,how long will it take to grow to $5 million?

You deposit $20,000 in an account that doubles in 7 years.How many years will it take the account to be reduced to its original value if it loses 12 percent per year?

Solving for Rates What annual rate of return is implied on a $1,000 loan taken next year when $1,500 must be repaid in year 5?

Which of the following would you prefer?

If an average home in your town currently costs $250,000,and house prices are expected to grow at an average rate of 3 percent per year,what will a house cost in 8 years?

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9 percent in years 6 and 7 and increase to 13 percent in the remaining years?

A firm's net income last year was $1.5 million.Its net income grew 5 percent during the last 5 years.If that growth rate continues,how long will it take for the firm's net income to double?

Solving for Time How long will it take $3,000 to reach $5,000 when it grows at 7 percent per year?

Explain how "interest rate" and "rate of return" are similar,yet different.

Solving for Rates What annual rate of return is earned on a $10,000 investment when it grows to $15,000 in 10 years?

Scenario A: At age 27,you invest $1,500 that earns 9 percent each year.Scenario B: At age 40,you invest $2,500 that earns 11 percent per year.Under which scenario do you accumulate more money by age 60?

Interest-on-Interest Consider a $2,000 deposit earning 6 percent interest per year for five years.How much total interest is earned on the original deposit (excluding interest earned on interest)?

Moving Cash Flows What is the value in year 7 of a $700 cash flow made in year 3 when the interest rates are 10 percent?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Valuing Bonds

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 4: Time Value of Money

Rule of 72 Approximately what interest rate is needed to double an investment over six years?

Compounding with Different Interest Rates A deposit of $700 earns interest rates of 10 percent in the first year and 7 percent in the second year.What would be the second year future value?

Which is more valuable,receiving $775 today or receiving $885 in 2.5 years if interest rates are 7.25 percent?

The interest rate,i,which we use to calculate present value,is often referred to as the:

You are offered a choice between $770 today and $815 one year from today.Assume that interest rates are 4 percent.Which do you prefer?

Moving Cash Flows What is the value in year 3 of a $250 cash flow made in year 15 when interest rates are 12 percent?

You are considering an investment that is expected to pay 3 percent in year 1,5 percent in years 2 and 3 and 7 percent in year 4.If you invest $1,000 today,what will this investment be worth at the end of the fourth year?

A $2 million deposit earns 7 percent for 13 years.If the account earns 9 percent per year forever after that,how long will it take to grow to $5 million?

You deposit $20,000 in an account that doubles in 7 years.How many years will it take the account to be reduced to its original value if it loses 12 percent per year?

Solving for Rates What annual rate of return is implied on a $1,000 loan taken next year when $1,500 must be repaid in year 5?

Which of the following would you prefer?

If an average home in your town currently costs $250,000,and house prices are expected to grow at an average rate of 3 percent per year,what will a house cost in 8 years?

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9 percent in years 6 and 7 and increase to 13 percent in the remaining years?

A firm's net income last year was $1.5 million.Its net income grew 5 percent during the last 5 years.If that growth rate continues,how long will it take for the firm's net income to double?

Solving for Time How long will it take $3,000 to reach $5,000 when it grows at 7 percent per year?

Explain how "interest rate" and "rate of return" are similar,yet different.

Solving for Rates What annual rate of return is earned on a $10,000 investment when it grows to $15,000 in 10 years?

Scenario A: At age 27,you invest $1,500 that earns 9 percent each year.Scenario B: At age 40,you invest $2,500 that earns 11 percent per year.Under which scenario do you accumulate more money by age 60?

Interest-on-Interest Consider a $2,000 deposit earning 6 percent interest per year for five years.How much total interest is earned on the original deposit (excluding interest earned on interest)?

Moving Cash Flows What is the value in year 7 of a $700 cash flow made in year 3 when the interest rates are 10 percent?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Valuing Bonds

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital and Policies

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters